“But if you’ve got a good temperament, which basically means being very patient, yet combine that with a vast aggression when you know enough to do something, then you just gradually learn the game, partly by doing, partly by studying. Obviously the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be.” – Charlie Munger

The Wall Street Journal interviewed Rob Arnott, founder and chairman of Research Affiliates, Jeremy Grantham (Trades, Portfolio), chief investment strategist at GMO LLC, Howard Marks (Trades, Portfolio), Co-chairman at Oaktree Capital Management, and Jeffrey Gundlach, CEO of DoubleLine Capital LP and asked them about their greatest successes and failures, and the lessons that stemmed from those experiences. I found the article to be very enriching given what Munger mentioned (above) about learning vicariously.

Mr. Arnott’s Lesson from success: “When your strategy goes against you, the natural inclination is to try to figure out what’s wrong with your strategy, but that’s dangerous,” says Mr. Arnott, whose current firm, Research Affiliates, has been buying out-of-favor emerging-markets shares lately. “Don’t fight the most recent battle, over and over again.”

Mr. Arnott’s Lesson from failure: “Don’t get involved if you don’t have expertise,” Mr. Arnott says. “My expertise is taking advantage of bargains, shunning what’s expensive, not short-term trading.”

Comments: As some writers have stated here, sometimes a systematic approach will fail. When that happens, it is critical to stick to the system instead of trying to adjust it just for the sake of short-term vicissitudes. I would say this must go through the common-sense lens, as sometimes, the systematic approach must adapt and change for the sake of long-term success. The other comment is critical, as we sometimes tend to believe that we understand a business when we are just uncovering the first layer. It is a different thing to understand what the business does and another to understand how the business operates and makes a profit.

Mr. Grantham’s Lesson from success: “There are inefficiencies in moving global assets around, not unlike stocks decades ago,” he says. “The bigger the range of assets you can invest in, the less competition you will have and the better the opportunities.”

Mr. Grantham’s lesson from failure: “I realized investing wasn’t a game,” says Mr. Grantham. “I swore off speculation for life. I became a cautious, value investor.” (Meanwhile, as the couple’s net worth soared and then plunged, Mr. Grantham’s wife refrained from pointing the finger at him—another “powerful lesson,” this time in the importance of marrying the right person, he says.)

Comments: This resonates with what Munger mentioned he would do if he were starting out young at this time, which is looking at small caps and unlooked asset classes. On the second thought, it is true that nothing sticks with us as the pain from losing a good amount of money. The important thing is the consequences of that loss on our future actions.

Mr. Mark’s lesson from failure: “The most important single decision an investor has to make is whether to be on offense or defense.” Turning conservative too early is part of the price that investors sometimes need to pay.”

Mr. Mark’s lesson from success: “I learned buying high-quality assets doesn’t equate to successful investments or safety,” Mr. Marks says.

Comments: The first comment is critical. Are you able to leave money on the table for the sake of protecting capital? Being on either side, aggressive or defensive has an implicit opportunity cost. It is the long term goal which will determine the side in which we’ll play. The second comment is also a gem: valuation is always critical, not just the quality of the company. This lesson is frequently overlooked in bull markets and forgotten in bear markets.

Mr. Gundlach’s lesson from success: “If a stock or bond has fallen, it often means expectations are low, as investors focus on troubles, not possible solutions, Mr. Gundlach says. “Identifiable problems aren’t a reason to stay away from an investment, they’re a reason to look,” he says. “The whole trick to investing is identifying when problems are already discounted in prices.”

Mr. Gundlach’s lesson from failure: “Most investors miss huge opportunities outside their comfort zones. “I had a very narrow way of thinking about investing.… I vowed not to do that again,” Mr. Gundlach says. “Most Americans tremble about buying outside the U.S.,” for example, so they squander opportunities.”

Comments: When we encounter a fallen angel, it is critical to determine if the issues are 100% discounted in the price. I believe this piece of advice reveals the most important aspect when separating bargains from value traps. The second comment is very relevant given that while the circle of competence is a critical concept, we can always expand our knowledge, just as Buffett and Gundlach have done.